Weekly roundup: Green debt relief and why Basel must meet Paris

Debt relief for a green and inclusive recovery

The week began with the launch of a substantial report and proposal for comprehensive debt relief to help heavily indebted developing countries recover from the Covid-19 pandemic sustainably and equitably. The report examines the pre-pandemic debt crisis in developing countries, and outlines how relief might be structured along the lines of the “Brady bonds” issued by Latin American countries in the late 1980s. Jointly published by Boston University Global Development Policy Center, the Heinrich Böll Foundation and the Centre for Sustainable Finance at SOAS, University of London, the detailed proposal follows growing calls from world leaders for targeted debt relief.

China-EU green taxonomy

China and the EU are expected to complete a common green taxonomy by the end of this year, says Zhang Bei, Deputy Director of the finance institute of the People’s Bank of China (PBOC). Speaking Monday at the Caixin Summer Summit 2021 in Beijing, Zhang said that experts working on the final version of the classification standards for green projects have already reached agreement on the types of projects and methodologies. PBOC Governor Yi Gang revealed Chinese-EU cooperation on green investment standards last April.

BIS Deputy on green swans

Tuesday saw the publication of a conversation between Bank of International Settlements (BIS) Deputy General Manager Luiz Pereira da Silva and CentralBanking.com’s Daniel Hinge. “The Green Swan conference was a manifestation of coordination,” da Silva emphasised. “I think this is really a sign of big progress.” The in-depth conversation also touched on central bank coordination with government, the radical uncertainty of climate change, carbon pricing and the need for urgent action. Da Silva is one of the authors of the ground-breaking Green Swan book, published by the BIS last year.

NGFS talks to Reserve Bank of New Zealand

In another interview published Tuesday, the Network for Greening the Financial System (NGFS) spoke to Toby Fiennes, Head of Financial System Policy Analysis at the Reserve Bank of New Zealand (RBNZ or Te Pūtea Matua). Fiennes outlined the steps that New Zealand and Te Pūtea Matua have taken to date, and outlined the three main components of the central bank’s climate strategy. Focusing on the importance of coordination, Fiennes was clear about what’s at stake. “Whatever we do, rebuild, reshape or invest in now must be sustainable, long term in its horizon, inclusive, anchored in our communities, and for the benefit of generations to come,” he said. The conversation is part of a series of interviews with NGFS members, in which they discuss their work and how they leverage the work of the NGFS.

Basel must meet Paris

The international financial regulation and oversight framework needs to align with the Paris Agreement target on global heating, said Runa Sarkar and Partha Ray in India’s Financial Express on Wednesday. Presenting an overview of the work of the BIS and NGFS, they argue that a major shift is required in the current trajectory of shifting finance to sustainable investments if targets are to be met through banks and capital markets. “The global financial crisis added prudential regulation as an essential component in the toolbox of central banks/financial regulators,” they say. “The current instances of climate-change impact are a wake-up call to include climate-change in the regulators’ toolbox as well.”

Financial sector guide on biodiversity

Wednesday also saw the publication of the Financial Sector Guide for the Convention on Biological Diversity, a collaboration between the Principles for Responsible Investment (PRI), the UN Environment Programme Finance Initiative (UNEP FI), the UN Biodiversity Conference and private sector groups. The new “first-of-a-kind” guide is intended to help financial institutions learn about the importance of nature for the financial sector, how to engage in the CBD process and how to take action to protect biodiversity.

New UK sustainability disclosure requirements

Thursday saw publication of plans for new UK sustainability disclosure requirements that would oblige firms to assess and disclose climate and environmental impacts, as well as their risks. The plans, part of a wider vision and strategy for the post-Brexit UK financial sector, would “require businesses to disclose their risks and opportunities from, and impact on, the climate and the environment through implementing integrated Sustainability Disclosures Requirements (SDR).” Other plans include a sustainable investment label covering retail investments and using information provided through the SDR.

BOJ climate debate

The week ended with insight into the discussion amongst the Bank of Japan’s (BoJ’s) Board that led to its recent announcement of a green lending facility. Central to the discussion was the importance of flexibility in light of the lack of agreement on a clear green taxonomy. The summary of the Board’s June meeting suggests the BoJ is reluctant to choose which investments are green and which aren’t, reflecting concerns around the principle of so-called market neutrality. “The Bank will provide funds to financial institutions for various investments or loans that they make to address climate change issues based on their own decisions,” according to another opinion cited in the summary. “This measure will enable the Bank to avoid direct involvement in micro-level resource allocation.”